Leading the 900 point fall in the Sensex today were banks whose future seems uncertain post-budget 2008. In his budget speech Last Friday, finance minister P Chidambaram had announced a Rs 60,000 crore loan write-off for farmers.

The BSE Bankex was down 6.7 per cent today, losing 679 points during the day to close at 9,434.

The three biggest losers were Punjab National Bank (down 9.7 per cent), Kotak Bank (9.1 per cent) and State Bank of India (8.8 per cent).

“The correction in banking stocks is both on account of the global correction and the lack of clarity on how the farm loan waiver will be compensated,” said Birla Sun Life AMC CIO A Balasubramanian. The finance minister had announced on February 29 a farm credit waiver of Rs 60,000 crore over the next three years.

“The market is not clear as to what kind of negative impact it will have on credit discipline among rural loan seekers,” said the CIO of a mid-sized mutual fund house.

While the development saw investors booking profits on banking shares, the low confidence level in banking stocks is likely to continue for some time. “The market’s perception will improve once clarity comes out on how the waiver will be compensated by the government,” said Balasubramanian.

The fall in prices has thrown open a discount of 5-10 per cent on most of the banking stocks. The BSE Bankex is down 24 per cent since its all time high on January 14, 2008.

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